NEW DELHI—India decided Wednesday to clear the way for exports of raw cotton, a move that is likely to reduce concerns about higher global prices for the commodity.
India, the world's second-largest producer of the crop after China, banned cotton exports on March 5, responding to pressure from local textile and apparel producers who want to ensure adequate cheap local supply of the raw material.
But the commerce ministry was forced to revoke the ban within a week amid fury from Indian cotton-producing states. Farm Minister Sharad Pawar said the move would deny farmers better prices available by selling overseas, largely to China.
The government, while lifting the ban, decided to scrutinize contracts covering cotton that had yet to be shipped. On Wednesday, it gave the go-ahead to export 1.9 million bales, weighing 170 kilograms each, under those existing contracts.
India is producing record amounts of cotton, but it is also exporting record amounts. On Wednesday, the state-run Cotton Advisory Board raised its cotton production estimate for the year ending Sept. 30 to a record 34.7 million bales, from 34.5 million bales.
The board estimates India will export 11.5 million bales of cotton, or about a third of its production, also a record. The large exports have worried textile and apparel producers who say there might not be enough cotton in the local market.
Global cotton prices remained relatively steady in March during India's temporary ban on exports. But market analysts had expressed concerns that any delay in allowing shipments could have pushed prices higher.
The Washington-based International Cotton Advisory Committee, an association of governments from cotton-producing and consuming countries, noted in a report this month that the Cotlook A Index, a benchmark price for raw cotton, remained at $1.00 per pound in March after India's ban took effect. "However, the longer the ban remains in place, the greater its upward impact on world cotton prices could be," the report said.
Global cotton prices are key for the U.S., which is the world's third-largest producer and largest exporter.While China is the largest producer, most of its output goes to feed its mammoth textile and clothing industry. China also has been building cotton stockpiles, a fact that has worried Indian textile producers, who fear it will give Beijing an unfair advantage regarding future prices.
The International Cotton Advisory Committee report said China accumulated more than 3 million tons of domestic cotton and at least one million tons of foreign cotton in its national reserve in the current cotton season. Chinese imports this season are forecast at 4.2 million tons, an increase of 61% from 2010-2011, the report said.
China's purchases, it added, have buoyed global cotton prices, but any decision to sell from the reserve could depress them in the future. "The size of the Chinese national reserve creates significant uncertainty for the global cotton market for months and maybe years to come," the report said.
Beijing's stockpiling added to the pressure on India's government last month to ban exports. But Indian cotton farmers have complained that they have been saddled with excess stocks amid increasing production.
Local textile mills are burdened with bank debt and have been buying only small quantities of cotton in the hope domestic prices will fall, producers say.
"We are hopeful" after the government's announcement Wednesday that it will allow more exports, said Dhiren Sheth, president of the Cotton Association of India,
Still, the director of the association, Shirish Shah, said New Delhi is unlikely to issue new export permits until at least the next crop season, which begins in October. "It's a shame really, as the stocks are comfortable," he said.
Those representing the textile industry demur. "Indian cotton supplies are sufficient, but it's not abundant," A.B Joshi, a senior Textile Ministry official, said Wednesday.
The U.S. Department of Agriculture expects Indian farmers to grow less cotton next year due to the flip-flops in government policy over the sector. The department says that as a result, Indian cotton exports could drop by half in the year ending Sept. 30, 2013.
